sentimenTrader Blog


2018-10-17 | Jason Goepfert

This is an abridged version of our Daily Report.

Correcting oversold

The McClellan Oscillator has gone from extremely oversold to neutral. It was below -90 just a few days ago and is now up to -10.

Such a rapid change in character has been a good sign during uptrends, and that context was important – during downtrends it led to much different outcomes.

Quick change in mood

The S&P 500 has gone from its worst 3-day return in months to its best. That kind of quick change has led to good returns, but once again only during uptrends. When this kind of volatility triggered while the S&P’s 200-day average was sloping down, future returns were horrid.

It’s good to be in the Dow

Every member of the major Dow indexes rose on Tuesday, as all 65 stocks in the Dow Industrials, Dow Transports, and Dow Utilities closed higher than they did on Monday. That’s the first time in almost 2 years.

Leaving the largest fund in the world

In the three sessions through Monday, shares outstanding in the S&P 500 tracking fund, SPY, declined by 4.6%. That’s the 3rd most since the start of 2016.


2018-10-16 | Jason Goepfert

This is an abridged version of our Daily Report.

V-shaped probability

Following declines like the past month, v-shaped bounces were common. Almost 40% of the precedents formed a bottom within a couple of sessions. While some short-term volatility was normal, all but a few of the precedents ended up with a positive return over the next several months.

Suddenly, a desire to hedge

Due to a rapid increase in defensive strategies, the Equity Hedging Index has soared into extreme territory after last week’s drop.

Readings this high since 1999 have consistently led to positive two-month forward returns, even during bear markets.

Testing metals’ mettle

The impressive rally in gold miners has pushed the 3-day average of the Optimism Index for GDX above 80 for the first time in over a year. According to the Backtest Engine, a 3-day average above 80 has led to a positive return over the next week only 39% of the time.


2018-10-15 | Jason Goepfert

This is an abridged version of our Daily Report.

A quick change in character

The S&P went from 52-week high to below its 200-day average in only 3 weeks. That ended a streak of more than six months above its 200-day average. Other times it underwent a quick change in character, from a 52-week high to below its 200-day average in fewer than 30 days, led to generally good returns.

Smart money is stepping in

The spread between Smart and Dumb Money Confidence is getting extreme. Dumb Money Confidence dropped from 60% last week to under 30% on Friday.

By the time the spread between the two has become this wide, annualized returns became excellent.

An emerging rally

The MSCI Emerging Markets index rallied more than 2.5% on Friday after setting a 52-week low on Thursday. This has been a consistent sign that sellers were exhausted, with one exception.

The latest Commitments of Traders report was released, covering positions through Tuesday

The 3-Year Min/Max Screen shows that “smart money” hedgers moved to multi-year net long exposure to the Aussie dollar, 5-year and 30-year Treasuries, and gold. That gold move was notable, since it’s one of the rare times that hedgers became more aggressive even when the metal wasn’t hitting new lows.


2018-10-15 | Jason Goepfert

The most difficult part of any decline is determining if the decline was enough to satisfy what had been negative conditions prior to the losses, and whether the probabilities favor a v-shaped bounce or a more sustained testing phase.There were plenty of extremes generated last week, made even ...

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2018-10-12 | Jason Goepfert

This is an abridged version of our Daily Report.

Corrections

After ending long streaks in uptrends, the Russell and Nasdaq fell into corrections. That has typically led to a poor risk/reward in the months ahead for both.

Panic

The selling pressure on Thursday generated at least a couple readings of panic. Inverse ETF volume exploded, as program selling reached multi-year highs.

That was fast

The S&P 500 fell more than 2% on back-to-back days, falling to a multi-month low, and not seeing a positive day for at least the past week. Since 1950, that has happened only four other times.

Assumptions are dangerous

The McClellan Oscillator is now showing an extreme oversold reading near -100. It’s assumed that the more negative the reading, the more oversold the market is, and more bullish for future returns. The Backtest Engine shows that’s not the case.


2018-10-12 | Jason Goepfert

Whenever there is volatility like that past two days, it's easy to pick and choose from a number of different extremes. There are so many that one can find something, anything, to support their view of either a bounce or more selling pressure.The majority of what we looked at was inconclusive. ...

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2018-10-11 | Jason Goepfert

This is an abridged version of our Daily Report.

Streaks end as concern rises

Major indexes ended some notable streaks, which were nearing record lengths. The S&P 500 ended months without a 1% move by tripling that to the downside. The Russell 2000 and Nasdaq Composite both ended long periods above their 200-day moving averages.

It triggered signs of concern

As the day wore on, there were few places to hide. That usually means traders flock to inverse ETFs which profit on a market decline, and Wednesday saw record volume. It also sent implied volatility jumping for the 2nd time in a week, with an inversion of the Term Premium and large drop in the CNN Fear & Greed model.

Indiscriminate selling

More than 90% of volume on the NYSE was focused on declining issues, and more than 90% of issues at 52-week highs or lows were lows. That kind of lopsided selling doesn’t happen often when the S&P 500 is still above its 200-day average. Since 1965, it has triggered on only 15 days.

Oversold (?)

Breadth momentum has been waning for a while, and now it’s getting extreme. The McClellan Oscillator dropped below -80 on Wednesday.


2018-10-11 | Jason Goepfert

With a failed bounce attempt intraday, we're starting to register a few more signs of notable pessimism or even outright panic. It's understandable, since this would be one of the few times in modern markets when the S&P 500 suffered back-to-back 2% losses during a generally uptrending market.As ...

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2018-10-11 | Jason Goepfert

With futures indicated to open lower following yesterday's pummeling, let's take a look at behavior following similar sell-offs that bled over to the next morning.Pre-market trading has the reputation of being emotional, with large gaps being driven by knee-jerk reactions to hyperbolic media ...

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2018-10-10 | Jason Goepfert

As stocks continue to follow though on the negative conditions that had been building for the past few weeks, we're starting to see the very beginning signs of pessimism, or even outright panic.Volume in inverse ETFs is on track to exceed 1.2% of total NYSE volume, which (if it holds into the ...

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